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Things That Make You Go Hmmm.... Such As The Brent-WTI Disconnect And Why It Is So Sticky
Earlier today Jim Quinn rhetorically asked why the price of oil hasn't collapsed despite the contraction in the global economy. Well, in a completely unrelated letter, Grant Williams of Things That Make You Go Hmmm, answers not only the question of why Brent and WTI continue to disconnect (must read for anyone interested in the oil market), but also Grant's underlying quandary (as rhetorical as it may be): "As stock markets plummeted in August, one thing that was noticeable was the resilience of both ‘the oil price’ (in the shape of Brent Crude, of course) and that of copper - two bellwether indicators of any slowdown in growth that can be relied upon to flash signals when a recession is nigh. To be sure, the data reported in August was dreadful. In the US we saw a slew of appalling regional manufacturing reports, (the Philly Fed and Empire numbers could genuinely be described as ‘shock- ers’), shattered consumer confidence numbers and rising inflation all topped off with a big fat goose egg in the NFP report last Friday, while in Europe, as the periphery continued to confirm just how week their economies continue to be, the real shocks came from the region’s perennial powerhouse economy, Germany. So why doesn’t ‘the oil price’ reflect this likelihood? Simple: 1. China has a LOT of paper money and is happy to swap it for hard assets that it knows will ulti- mately be far more beneficial in the long run as Western governments continue to debase their currencies. 2. Western governments continue to debase their currencies."
Full TTMYGH letter (pdf):
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TD #?, thanks but take a break. Monday is gonna be busy with the Dax down another 3-5% :)
Cantarell is not exceptional as far as offshore fields go...the decline rates exceed anything previously seen from surface fields
Yup, and horizontals die vertically.
The typical Bakken horizontal well goes to its max production within a year of about 1,500 barrels/day. It holds that level for 18 months, and by the end of that 2nd year, in 6 months after that 18 month point, production will be down to under 300 bpd. Vertical line on the graph.
There is just so much hype out there about these fields and they are going to get an incredible number of people killed by it.
When talk turns to WTI and Brent, always remember, sports fans . . . your car doesn't trade oil. It burns it. When it's gone, it's gone forever -- and when it's gone, you're gone forever.
i thought when you said 'die vertically' you were referring to the video clip at the end of the article:
http://www.youtube.com/watch?v=I4U6T_BB1N8
At least we have some idea what Cantarell is doing. We don't have any idea about Saudi production and what condition Ghawar is in.
Does Vegas take bets on peak oil?
The monthly macd has not crossed so I will respect the Ben put till it does
Correction cross happened this week
Watch SSE trying to break a 20 year old support at 2,566 during the next couple of days....The party is here...PIIGS and peripherry are buiyng the drinks. Don't mess with the old nations...they know the true meaning of each word in their flesh and blood.
"1. China has a LOT of paper money and is happy to swap it for hard assets that it knows will ulti- mately be far more beneficial in the long run as Western governments continue to debase their currencies. 2. Western governments continue to debase their currencies."
I absolutely agree with this 100%
The third reason, of course, is that governments whose business it is to know about such things, are well aware of the fact that Peak Oil is here, and as oil is not replenishable as is wheat, corn and pork bellies, a decline in demand does not mean a decline in price.
"... that governments whose business it is to know about such things, are well aware of the fact that Peak Oil is here ... "
For agenda planning purposes only; otherwise, actually, they are perpetually clueless ...
But isn't that why we elected them? That gorgeous red tie. The speech that someone else wrote.
Isn't that the way we do it here?
there are two prices for crude. the price the usa pays and the price for everyone else.
What does everyone else pay?
they pay Brent in USD, which they can't print and must purchase on the ForEx markets.
PetrolDollar FTMFW!!!
Things that make me go Hmmm...such as why the link to the pdf does not work.
nor did the video links inside the scribd.................
I fail to see how "surging oil prices in a recession" is the "preferred outcome." In fact didn't we just lose a couple hundred million on the whole "battery thing" as taxpayers? It certainly is fascinating to see the difference in price between the Brent and WTI--and obviously there can be no truly good explanation although many "bad" one's can certainly go a long way. I find the least plausible to be "peak oil" but having said that it's really hard to tell just how much of a true "slowdown" the USA is going through. Now here's my ZH theme song for the week:
http://www.youtube.com/watch?v=pnYfENJZVuI&feature=player_detailpage
keep it jammin...keep it movin' Tomorrow People.
Thanks for sharing!
Another thing not appreciated about Libya....
1.6 mmpbd exports = 4% of world oil on the market (i.e. exported and not retained domestically)
1.6 mmbpd light sweet crude = ~10% of light sweet crude on the market...
not to mention all that natgas.
hmmm not much really new unless readers are truly living in caves. everyone thinks inflation is coming but there is a fine line between inflation and deflation. how much of the world's middle class can afford $2000 gold? I would reckon, not so many... if all asset class go to Gold reference, then no one will be able to afford ANYTHING... don't think that is in the cards. What I see in current Gold appreciation is pricing of financial risks that are tremendous right now. These risks are worth $2000+/oz to the investor who can afford it. For the rest of the world, what this all means is that everyone is being shut-out of the financial system that protects you from fiat risks... what else do you have left, buying flat screen tvs and cars, maybe real estate if you can still afford it.... but that does not provide you increased income, only protects you possibly from a down-side... that is what Byelorussians recently did with their own fiat currency issues... Sorry but don't see inflation but instead a major wave of deflation as each failing economy shuts itselt off one after the other from world trade since each can no longer afford to participate in it...
Not all assets classes are created equally. You can see deflation in those that require credit (housing, cars) with price inflation in those staples that generally don't (food, gas) at the same time.
Doesn't that mean that houses and cars were overpriced before TSHTF?
If you don't understand what you are talking about, you shouldn't have an opinion.
Yeah, but the download link is broken...
LULZ, JUST NOW...
disregard
Peak oil is a phrase that is so often flung about, and usually by the uninformed, that it really should not be flung about at all, or even pedantically explained.
Rather than insist on a label, isn't it better to just say that the world's population growth is exploding faster than oil production ever can. Simply that. We're adding 3 million humans to the US each year. US oil production is down from its 1970s maximum of almost 10 mbpd to the present 5.4 mbpd -- which is something like 45%. That's just factual. The US has lost almost half its oil production in 40 yrs, for reasons having little or nothing to do with environmentalism. There are no US environmental laws off the coast of Japan, but no one drills there for the same reason -- no oil.
In those 40 yrs, btw, the US has added about 160 million people. That's a doubling of population while oil production is declining.
Adding people and not adding oil . . . well, use your own head. What possible chance can that have of working? When that population is importing oil, why be surprised the price is up?
"isn't it better to just say that the world's population growth is exploding faster than oil production ever can."
I have to disagree with your statement. IMHO, the world's population has nothing to do with PO. PO has only to do with supply (production) and not demand (population growth).
Once peak oil is achieved, population growth can exacerbate it and cause the evil day of no oil to arrive sooner.
When the production of oil in any year is unable to equal the production of the previous year, the former year becomes a high, which must be taken out by a higher high. The production of oil in any year is comprised of the production from old wells and production from any new ones that come on line.
They probably allow an old high to exist for 5 or 10 years before they ring the PO gong and declare the game over. Also, I have a feeling that most of the production numbers for oil today are no more reliable than the numbers of WMD that Saddam was about to unleash on the 6 billion of us.
Amazing. People with no money in their pockets are demand on oil.
That is what you've in this US world order.
Growth in world population does not mean growth in world consumer population.
US citizens are keeping to consume more and more oil.
Them outsourcing jobs (and the consumption of oil with it, shifting that slice of oil consumption of people like Chinese) has been met with an increase of oil consumption by US citizens.
Even though US citizens have exported needs for oil consumption, they have created new needs at oil to fill partially the gap.
higher oil price is not all bad for the US, since high oil price backstops dollar devaluation.
Oil need to stay over 70$ to make oil sand worth its exploitation...
The oil price is collapsing in overseas trade! Down almost 50 cents!
Oh, the humanity.
gh
oil is underpriced right now compared to PMs imho. I add every time it drops. It is a hedge against inflation, the plunging dollar, war mongers, MENA riots, and China sucking up as much as possible.
Did you notice Barry gave JPM 30 Million of the 60 Million "emergency barrles of oil released?"
Now why did he do that? Why not let it flow freely into the market to lower prices?
Birds of a feather.....
More like slow DOW.
So let's say I want to buy oil, anyone know any good ETFs (besides OIL?) .. I have just a basic ST account. No fancy shtuff.
Great Article.. Thanks
This guy obviously knows nothing about oil. Just look at the map of Cushing he provided. Oil does not move on streets and highways. If he showed a crude pipeline map, with tank farms, of the Cushing area, it would look like a map of the subway system around Times Square, only more confusing.
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